Rosneft May Take Controlling Stake in Seadrill [UPDATE]

ST PETERSBURG, Russia/OSLO, May 24 (Reuters) – Russia’s Rosneft could buy a controlling stake in the world’s largest offshore driller, Norway’s Seadrill, after saying it was in talks to acquire a significant stake in Seadrill subsidiary North Atlantic Drilling.

The announcement comes as Rosneft and North Atlantic Drilling signed a cooperation agreement on Saturday, one of several deals announced by Russia’s largest oil firm during the St. Petersburg International Economic Forum, showing the keenness of multinationals to do business with Russia despite tensions over Ukraine.

The agreement is also a coup for Norwegian-born tycoon John Fredriksen, one of the world’s richest men, who controls Seadrill and North Atlantic Drilling, as it gives him access to the Russian exploration market on a large scale.

“The agreement contemplates Rosneft acquiring a significant stake in North Atlantic Drilling Ltd. with the latter entering Russia’s onshore drilling market, and signing of long-term contracts for onshore and offshore drilling,” Rosneft said in a statement on Saturday.

Separately, Rosneft boss Igor Sechin told the Rossiya 24 TV channel his firm could take a stake of up to 50 percent in Seadrill over time, suggesting Fredriksen may further expand his reach in Russia.

“We’re becoming Seadrill shareholders. At this stage we’re discussing combining our service company RN Bureniye with Seadrill and handing it some of our orders. In time we could increase our stake to 50 percent,” Sechin was quoted as saying by the Interfax news agency.

Seadrill is the world’s biggest offshore oil driller by market capitalisation, ahead of Transocean. Fredriksen, nicknamed “Big Wolf” for his business instincts, is Seadrill’s largest shareholder with a stake of 24.54 percent.

Seadrill is the crown jewel in Fredriksen’s business empire, that ranges from shipping to fish farming.

NORTH ATLANTIC DRILLING DEAL

North Atlantic Drilling specialises in drilling in harsh environments like the Arctic. Seadrill spun it off and listed it on the New York Stock Exchange in January. At the time, the initial public offering raised $125 million.

Rosneft provided no further details, but Interfax reported the deal could value North Atlantic Drilling’s capitalisation at around $2 billion.

“We have sought to access the growth opportunity represented by the Russian market for several years, and we are very pleased to have reached an agreement with Rosneft for this landmark transaction,” North Atlantic Drilling CEO Alf Ragnar Lovdal said in the statement. (Reporting by Alexei Anishchuk in St Petersburg and Gwladys Fouche in Oslo; Writing by Lidia Kelly in St Petersburg and Gwladys Fouche in Oslo, Editing by Timothy Heritage and David Evans)
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UPDATE: Seadrill released the following press release on 26 May:

Hamilton, Bermuda, May 26, 2014 – North Atlantic Drilling Ltd. (“NADL” or the “Company”) and Seadrill Limited (“Seadrill”) are pleased to announce that an Investment and Co-operation Agreement (“the Agreement”) has been executed with Rosneft in order to pursue growth opportunities offshore and onshore in the Russian market through at least 2022. As part of these proposed opportunities, NADL will enter the onshore drilling market in Russia and enter into contracts for multiple offshore assets. In addition Rosneft will be acquiring a significant equity stake in NADL.

NADL has already contracted to drill the first two wells in the Kara Sea, as part of Rosneft and Exxon’s joint venture during 2014 and 2015.

As part of the Agreement, a number of long term contracts for NADL’s near-term availability are expected to be signed as well as a commitment to future contracts and newbuild projects. The Agreement envisions initial employment of up to 9 offshore rigs to Rosneft with a total commitment of 35 rig years.

Closing of the transaction is expected during the second half of 2014, subject to customary due diligence, negotiation of detailed transaction terms, and respective Board approvals.

The Company’s operations in Stavanger will continue as today and will focus on the current operations and future growth. The strategic partnership is likely to entail opening up of other regional offices to serve local growth in demand. Overall activity levels are expected to increase significantly and provide employees with attractive opportunities.

Seadrill, after the initial transaction, will remain the largest shareholder in NADL. The Board is confident that the Agreement with Rosneft will strengthen NADL as the leading harsh environment drilling company. It will position NADL to uniquely increase the value for all of the Company’s shareholders and make it an even more attractive workplace for the employees.

Alf Ragnar Lovdal, Chief Executive Officer of NADL says in a comment, “We have sought to access the growth opportunity represented by the Russian market for several years, and we are very pleased to have reached an agreement with Rosneft for this landmark transaction. The Russian market is one of the most attractive opportunities in the world and offers tremendous growth potential for North Atlantic Drilling. By partnering best in class drilling with a supermajor who produces over 5m barrels per day, we, after closing of this transaction, will have created a powerful force in the Russian market and for Arctic regions on a global basis. We look forward to closing this important transaction and working with Rosneft for many years to come”

NADL is an offshore harsh environment drilling company with focus on the North Atlantic basin. The company has nine drilling units in the fleet, including five semi-submersibles, a drillship, and three jack-up rigs. Seadrill Limited currently owns 70% of the outstanding shares and the company is listed on the NYSE and Norwegian OTC with a market capitalization of approximately US$2.1 billion.

This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.